'Since You're So Rich, You Must Be Really Smart': Talent and the Finance Wage Premium

103 Pages Posted: 19 May 2016 Last revised: 20 Mar 2018

Michael J. Böhm

University of Bonn

Daniel Metzger

Stockholm School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group; Swedish House of Finance

Per Strömberg

Swedish House of Finance

Date Written: March 2018

Abstract

Wages in the financial sector have experienced an extraordinary increase over the last few decades. A proposed explanation for this trend has been that the demand for skilled workers in finance has risen more than in other sectors. We use Swedish administrative data, which include detailed cognitive and non-cognitive test scores as well as performance in high-school, to examine the implications of this hypothesis for talent allocation and relative wages in the financial sector. We find no evidence that the selection of talent into finance has improved, neither on average nor at the top of the talent and wage distributions. A changing composition of talent or their returns cannot account for the surge in the finance wage premium. These findings alleviate concerns about a “brain drain” into finance at the expense of other sectors, but they also point toward strongly increasing wage premia for this industry over time.

Keywords: Sectoral Wage Premia; Talent Allocation; Earnings Inequality; Compensation in Financial Industry

JEL Classification: J24, J31, G20

Suggested Citation

Böhm, Michael J. and Metzger, Daniel and Strömberg, Per, 'Since You're So Rich, You Must Be Really Smart': Talent and the Finance Wage Premium (March 2018). Riksbank Research Paper Series No. 137; Swedish House of Finance Research Paper No. 18-3; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 553/2018. Available at SSRN: https://ssrn.com/abstract=2780367 or http://dx.doi.org/10.2139/ssrn.2780367

Michael J. Böhm (Contact Author)

University of Bonn ( email )

Adenauerallee 24-42
Institute for Applied Microeconomics
Bonn, NRW 53113
Germany
+49 228 73-9240 (Phone)

HOME PAGE: http://www.iame.uni-bonn.de/people/michael-boehm

Daniel Metzger

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Per Stromberg

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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